Retirement -- Financial Planning for the Survivor.

[chinaco]

For us, the survivor is covered by the portfolio. I have a small pension that will be taken with the Joint survivor option.

[Milton]

Quote:

Originally Posted by WM we also are trying to save at a rate that will make us self-insured.

That's usually the better way to go.

[whitestick]

Actually, this is a real concern for myself and another couple who we know very well. The Husbands both invest similarly in income producing investments that have produced a good stream of income to cover expenses and add to the portfolio. The wives have determined that their insurance plan is that in the event that either one of the husbands pass on,, the other one, becomes the financial manager for the other. Not sure that is necessarily an obligation that I anticipate, but to date we have not determined a way to get around it. The rate of income per investment is much higher then the "standard" rate, and thus exposes the remaining wives to a potential lower income stream by relying on even the recommended investment portfolio returns of the mainstream financial community. The husbands have begun to put down some of the guidelines for investment to codify the processes, but we believe that it might result in a waste of time, as the wives will not want to invest the time to manage it themselves. It may be that life insurance is the only option, although we continue to explore alternatives.

[chinaco]

Quote:

Originally Posted by whitestick ... The husbands have begun to put down some of the guidelines for investment to codify the processes, but we believe that it might result in a waste of time, as the wives will not want to invest the time to manage it themselves. It may be that life insurance is the only option, although we continue to explore alternatives.

I am in a similar situation with DW. But I am trying to simplify the approach.

I am dividing retirement into decades. 55 to 65, 65 to 75, etc. and structuring the portfolio in a similar way.

For 55 - 65, we will have bonds to fund that decade plus a small pension at 55. We will add DW SS at 62. During this decade, I want to move money for the next several decades into target ret funds that hit the target date on a decade. I have a model for dividing the funds. The further the target date the more aggressive the fund and the more time to grow that investment.

65 - 75, we will add my SS. That decades target fund will be heavily weighted in bonds and it will be spent directly from the fund.

Ditto for other decades

I am also considering the use of an annuity (purchased at 65) to create a base income using 10 to 15% of the portfolio. This is a safety net.


However, now that the new endowment funds have come on the scene, I am considering a different approach. I might transition the portfolio to one of those funds and let it fund retirement and draw 4% from it. I am watching and studying them.


However I decide to do it... I want an approach that is reasonably simple, preserves capital, and throws off income in a predictable manner... But I also want to reduce the variety of commonly known risks... market fluctuation, interest rates, inflation, and.... sleazy financial planner/managers (and insurance agents) that would like to feed on our money.

[Milton]

It's rather pathetic that in this day and age the wives' "plan" is simply to abdicate all responsibility for their financial futures to their respective husbands, and subsequently to their friends' husbands.

Two thoughts:

(1) What are they going to do if both of the husbands die many years before the wives?

(2) Do you and the other husband have a reciprocal "plan" for cooking and housekeeping (if one of the wives dies before her husband, the widower can expect the suviving wife to look after all his meals and laundry)?

Quote:

Originally Posted by whitestick The wives have determined that their insurance plan is that in the event that either one of the husbands pass on, the other one becomes the financial manager for the other. Not sure that is necessarily an obligation that I anticipate, but to date we have not determined a way to get around it.

If you die first, from your perspective it becomes a non-issue.

If the other husband dies first, I wouldn't feel under any obligation to become his widow's unpaid portfolio manager. It's not like you agreed to assume that responsibility (from your post, it's the wives' plan, not the husbands'). Just say no.

Quote:

Originally Posted by whitestick The husbands have begun to put down some of the guidelines for investment to codify the processes, but we believe that it might result in a waste of time, as the wives will not want to invest the time to manage it themselves.

You can lead a horse to water, but you can't make it drink.

[2B]

Quote:

Originally Posted by Milton It's rather pathetic that in this day and age the wives' "plan" is simply to abdicate all responsibility for their financial futures to their respective husbands, and subsequently to their friends' husbands.

From a certain perspective they get what they deserve. I am going to great lengths to "educate" DW. She is more than happy to let me do it all but then frets about not knowing what's going on when I point out to her that no one on my side of the family made it past 85 (and few over 70). On her side, over 75% made it over 85. They may rot in a nursing home but they live far longer.

Part of my plan is to actually train my children. Set up a simple asset allocation method and count of DW or my children to manage it until it becomes an inheritance. If I make it to 70, I also plan to turn it over to them to manage because of all the damage I've seen the elderly do to themselves (both sides) when they get on in years.

[Rustic23]

If I die first, DW looses 40% of Military pension, 30% of SS. That is one of the reasons we plan to delay SS to 70.

[harley]

Since we're living off investments, DW or I would be fine if anything happened to the other one. Since I'm still carrying some life insurance, she'd probably be a little better off if I die. But since I cut the grass, cook some, and do other chores, she thinks I'm worth a little more than the money.

However, my mother's husband just died, and due to some incredibly dumb assumptions and even worse planning, she's going to be living on somewhere between 15-30% of what they had coming in before. They assumed she'd die first, despite the fact that he was older, and in contrast to any actuarial table ever published. "We don't need no steenkin' survivor benefits!" And with minimal life insurance, it's going to be hard to develop a decent cash flow.

I will, of course, help as needed. But by planning for this sort of thing yourself ahead of time, you not only are providing for your spouse, you are avoiding putting your kids in a very uncomfortable position.

[haha]

Quote:

Originally Posted by harley I will, of course, help as needed. But by planning for this sort of thing yourself ahead of time, you not only are providing for your spouse, you are avoiding putting your kids in a very uncomfortable position.

I agree, but I think that unless the budget is very tight, no reason that the survivor should't take a small to moderate hit when the mate dies. Why should a person deny himself/herself during retirement so that a survivor can have a cushier trip?

This doesn't apply to what happened to your mother- this is a large hit, and as you mention puts the children in a tight spot.

Ha

[Milton]

Quote:

Originally Posted by harley my mother's husband just died, and due to some incredibly dumb assumptions and even worse planning, she's going to be living on somewhere between 15-30% of what they had coming in before. They assumed she'd die first, despite the fact that he was older, and in contrast to any actuarial table ever published.... I will, of course, help as needed.... we're living off investments

Wow.

You do what you need to do: at the end of the day, she is your mom. But I do hope that you won't allow your own financial security (and your wife's) to become jeopardized by this situation not of your making.

[harley]

Quote:

Originally Posted by Milton Wow. You do what you need to do: at the end of the day, she is your mom. But I do hope that you won't allow your own financial security (and your wife's) to become jeopardized by this situation not of your making.

We won't need to, although if it did put us in a bad spot it would be hard to decide what to do or how to handle it. Mostly, I'm trying to get her to see that she can't assume she'll only live a couple more years and can keep all her money in cash. She's only 73. I think she believes she controls the universe or something.

You raise a good point, though. If we don't make sure our spouses are taken care of (and vice-versa), we could be creating a situation that would not only make them unhappy, it could destroy inter-generational relationships as the kids have to make choices between their immediate family and mom or dad. Not what I would want to leave for my daughter.

[Milton]

It sounds like you (luckily) have more than adequate resouces and will be able to help her without making any real adjustments to your own planning or lifestyle.

That's certainly a good thing. While adult children usually feel a need to help aged parents even when the latter have been foolish, their spouses are - perhaps understandably - not always sympathetic. And who needs marital disharmony, especially in retirement?

Quote:

Originally Posted by harley I'm trying to get her to see that she can't assume she'll only live a couple more years and can keep all her money in cash. She's only 73.

I have similar discussions with my own mother (aged 69).

[rickier55]

I do most of the financial planning. When we retired 3 years ago, I elected the highest "survivor" option available (which gives spouse about 55% cola'd). She will have her own small pension (eligible now, but we're waiting to max it out when she turns 60). She will also get SS a few years later. We have a small retirement portfolio from which we're drawing about 2.5 - 3.0% to supplement my pension.

I was planning to drop life insurance significantly after retiring, but, after going through the numbers a few times, I decided to maintain my life insurance at least until 65. At that point the cost will go up significantly, but we will also have a better handle on both her pension, and her SS.

I've also put together a fairly short list of "things to do when I die". It's not a real "financial plan", but it is a summary of where we are, and what she should consider doing to make sure she's ok. ie, how much she can expect for survivors benefits, how much she can reasonable draw on retirement portfolio, what she should consider doing with insurance proceeds, and what she might want to consider with the house.

I'm shooting for having her have 90-100% of our current spending level(cola'd), though I really suspect she should be ok at even 80%.

Rick

[Finance Dave]

Quote:

Originally Posted by chinaco Can the survivor maintain the basic lifestyle on $24k? How are you dealing with this aspect of planning?

It obviously depends, but I think most people would be ok. The biggest factor I think is whether your largest fixed cost is paid for...your house. although for some people property taxes are quite high. As you said, food, utilities (semi variable), medical costs, food, etc. are all variable....and as I look at our budget, those will be the biggest expenses after retirement (our mortgage will be paid off).

How do I deal with it? We basically are planning to oversave by about $200k. We figured out what we think we'll need, then tacked on about $200k...this will ensure that if one spouse dies, we'll still have plenty. Also, for us, SS is a relatively small portion of our retirement income because we have saved quite a bit for retirement, and plan to have over $2M on the day we hang it up.

Edit: Also consider life insurance if you have any. If one spouse dies while in the workforce, they MIGHT get life insurance through their employer (our employer offers 1x annual salary). Granted if it's after you stop working, this doesn't apply unless you buy insurance...which we won't do.

Dave

[friar1610]

Quote:

Originally Posted by rickier55 I've also put together a fairly short list of "things to do when I die". It's not a real "financial plan", but it is a summary of where we are, and what she should consider doing to make sure she's ok. ie, how much she can expect for survivors benefits, how much she can reasonable draw on retirement portfolio, what she should consider doing with insurance proceeds, and what she might want to consider with the house. Rick

I've been trying to do the same thing - a tutorial about how to manage strategic finances when I ain't around. It's a bit tedious, but I' hope I'll get it finished before I croak. BTW, in the unlikely event my wife were to predecease me, I could use a tutorial from her on the tactical aspect of finances. That is, she pays all the bills, knows how to wait until the last minute before paying a bill, knows what stores have discounts what days of the week, etc. I don't know squat about that. But she doesn't know squat about asset allocation, withdrawal rates, etc.

Sounds like we need to leave notes for each other.

[Finance Dave]

Quote:

Originally Posted by friar1610 I've been trying to do the same thing - a tutorial about how to manage strategic finances when I ain't around. It's a bit tedious, but I' hope I'll get it finished before I croak. BTW, in the unlikely event my wife were to predecease me, I could use a tutorial from her on the tactical aspect of finances. That is, she pays all the bills, knows how to wait until the last minute before paying a bill, knows what stores have discounts what days of the week, etc. I don't know squat about that. But she doesn't know squat about asset allocation, withdrawal rates, etc. Sounds like we need to leave notes for each other.

The bill paying thing is easy. Go to each utility and set up ACH debits (automatic clearing house). Tell them you want the transfer done the day before the due date. I write fewer than 15 checks a year...it's all on auto pilot.

As a matter of fact, when I first got my mortgage, they wanted me to set up ACH. Payment was due on the 1st, but there was a 'grace period' until the 11th. I said "take it out on the 10th". They said,"we can't do that", we have to take it on the due date. I said "fine, I'll send you a check each month". Then, every year they'd send me a letter telling me about their ACH program. I'd take this into the bank and ask again to have it taken out on the 10th...they'd say no. After 8 years of this, the manager got tired of seeing me...and now I'm paying via ACH on the 10th. 5 more years and we'll own our home.

[whitestick]

Quote:

Originally Posted by Milton It's rather pathetic that in this day and age the wives' "plan" is simply to abdicate all responsibility for their financial futures to their respective husbands, and subsequently to their friends' husbands. Two thoughts: (1) What are they going to do if both of the husbands die many years before the wives? (2) Do you and the other husband have a reciprocal "plan" for cooking and housekeeping (if one of the wives dies before her husband, the widower can expect the suviving wife to look after all his meals and laundry)? If you die first, from your perspective it becomes a non-issue. If the other husband dies first, I wouldn't feel under any obligation to become his widow's unpaid portfolio manager. It's not like you agreed to assume that responsibility (from your post, it's the wives' plan, not the husbands'). Just say no. You can lead a horse to water, but you can't make it drink.

Ok, in fairness to this day and age for the wives, as I stated in my post, it's because we have a non-mainstream form of investing - think covered calls and income streams, rather then capital appreciation, that makes it a non-simple investing process. To continue to maintain that type of process and that higher level of income streams, is the part where they would suffer, if they turned the remaining assets over to a standard capital investment of equities and bonds mixtures. Not to get into a highjack of the merits of that, but following that process forgives them from your criticism.
The intent of the message was how to provide for them to continue to enjoy their relative income levels after the husbands are gone.
As to a reciprocal agreement, when you are discussing friends or family, it's a bit cold to cast them out into the street with no thought to our mutual humanness and dependence on each other on this planet. I really was trying to derive a plan for my own wife, but mentioned that others have very similar concerns as also expressed by others on this board. So even though I might die first , providing for my loved ones after I am gone is very much my issue.

[Ed_The_Gypsy]

This is a very important thread for me. I have to check on some things.

[chinaco]

Quote:

Originally Posted by harley We won't need to, although if it did put us in a bad spot it would be hard to decide what to do or how to handle it. Mostly, I'm trying to get her to see that she can't assume she'll only live a couple more years and can keep all her money in cash. She's only 73. I think she believes she controls the universe or something. You raise a good point, though. If we don't make sure our spouses are taken care of (and vice-versa), we could be creating a situation that would not only make them unhappy, it could destroy inter-generational relationships as the kids have to make choices between their immediate family and mom or dad. Not what I would want to leave for my daughter.

We are the sandwich generation. It would appear to me that you are in a bit of a bind unless you are really well off... or unless your mother has some other assets.

Here are a some considerations. If your mother has a house, she may be able to sell it and spend that money. Not sure if you have siblings or not... But suppose she has some assets (e.g., home). You could be in a situation where you help her out... she dies, and the proceed from her assets go to your siblings. If you help your mom, do so only after here assets are gone. Remember, if she goes to a nursing home they will take it also.

If your mom has 20% of her previous income and needs say 50% of the previous income.... dispose of her assets to fill the gap first.

You can do this several ways. One would be to have her sell her house to you for a reasonable amount (conservative). Then let her pay you a modest rent... perhaps to cover expenses of the property and repairs. The same could be done with other non-liquid assets if she has any. That way she at least gets some money for income from her own assets. In the end, you may wind up spending money to help her, but it will alleviate some of it.

Also, she may be eligible for some sort of public assistance... check with some of the Govt and Private agencies in your area.


You are pointing out an example of the extreme situations that occur when people do not plan for the death of a spouse.

Thanks for sharing.

[Walt34]

If I go first income will drop 30%, but there will be one less person to feed and one less vehicle to maintain. She will sell the house we're in - way too big for one person - and write a check for a smaller place. There is enough in savings/investments/life insurance on me that she might even be better off, though I don't want her to think about that.

If she goes first (unlikely) I will definitely be better off as my income will go up. "The Plan" at retirement was that she was going to get another job but that didn't happen and she's going to school instead to finish her BA degree, which is okay with me.

The fly in the ointment is her father, who we just recently learned has been living slightly above his means for about the last ten years and is now broke. We're fixing up his paid-for house for sale and to get him into an environment that he can afford to sustain.